South Africa corruption scandal: yet another British firm accused of complicity

In the slow car crash of the corruption saga involving South Africa’s President Jacob Zuma and the Gupta family, yet another British company has been accused of complicity.

In this case, it is London law firm Hogan Lovells, accused by Lord Hain of producing an ‘incomplete, fatally flawed whitewash of a report’ into corruption at South Africa’s tax inspectorate, which allowed unsavoury people to be reappointed and the looting spree to carry on unchecked.

Hogan Lovells deny everything, except having written the report. They have stated: ‘Lord Hain’s unfounded accusations reflect a lack of understanding of the work we were asked to carry out for the South African Revenue Service.’ It is worthwhile saying that seems directly to contradict not only the allegations by Lord Hain, but also the interpretation of the case on the ground in South Africa by Corruption Watch, the excellent TI national chapter there, which has thoroughly reviewed the available documentation.

Hogan Lovells claim that their Terms of Reference restricted what they could do, although this is heavily disputed by those who know the case well. In more general terms, it is undoubtedly possible that a law firm might be so restricted by the Terms of Reference that the investigation is pre-destined to find nothing. The firm might well have been asked to carry out work that did not really look at the key issues. In fact, one of the reasons why esteemed bodies such as the Serious Fraud Office have little confidence in investigations by law firms commissioned by the companies themselves is that the terms of reference are all important. A company, or body like the South African Revenue Service, which wants to demonstrate it has had a look under the bonnet, while not really looking too hard, can all to easily define the terms of an investigation such that nothing too incriminating will be found.

What should the law firm do in those circumstances? Undertake a review which is likely not to reveal the wrongdoing, but will please the client paying for the investigation? Or make the best possible efforts? Agree to – and perhaps advise on – a Terms of Reference that will allow a box-ticking exercise that exonerates the company – or insist on a wide-ranging, thorough investigation, and walk away if the client does not agree? Is the prime duty here to the client, or to the interests of justice? The Law Society’s own ethical guidance states:

‘Ethics is based on the principles of serving the interests of consumers of legal services and of acting in the interests of the administration of justice, in which, in the event of a conflict, acting in the interests of the administration of justice prevails.’ Hogan Lovells’ statement itself acknowledges ‘We have a fundamental duty to uphold the rule of law with integrity and professionalism, and have been strong advocates of that in South Africa.’ Their Chairman’s statement to the South African Parliament is full of statements about ethics and integrity, while at the same time claiming that the Terms of Reference were very narrowly drawn.

Two things stand out in the Hogan Lovells case. First, it was blindingly obvious by the time the firm took on the review what was happening in South Africa; the South African Revenue Service and its unsavoury Deputy Commissioner were at that time already facing multiple allegations and criminal investigations for corruption, which is why Hogan Lovells were appointed. Did that not ring any alarm bells? Secondly, there is no hint that Hogan Lovells believe it has been involved with anything that was wrong: not complicity, or deliberately – you can see why the company would not admit to that – but even peripherally, in a difficult case, in a difficult country at a difficult time. We were just doing our job: don’t blame us.

At very least, Hogan Lovells’ approach is disappointing. No hint of remorse that the people of South Africa have been serially defrauded by their President, the Gupta family, and their cronies. No hint that there was an ethical dilemma here, even if (and unlikely as it may seem) it only came to light subsequently. No sense of reflection about how to do business differently in future. At worst, as Lord Hain alleges, this could be a cynical firm that has turned a blind eye to its duty to act in the interests of justice, and is now engaged in an unconvincing and unedifying denial.

This matters, because the roll-call of British-linked companies is growing. KPMG, Bell Pottinger, Hogan Lovells, McKinsey and others are known to have been directly involved; two British banks are accused of being links in the chain by which the money was channelled to safe havens. Only last week, the UK government publicly launched its new Anti-Corruption Strategy, in which the Home Secretary claimed that ‘To secure our future prosperity, we must do all that we can to make sure that Britain remains one of the safest and cleanest places in the world to do business’ with one of the six priorities being to ‘improve the business environment globally’. It will do the UK no favours if it cleans up at home, yet exports corruption abroad. The City is a global financial and services centre. If the UK wants a reputation as a home for clean business, British firms need to operate to high standards wherever they are, whether it is the UK or South Africa.

The Bribery Act helped to rein in some of the excesses of British multinationals bribing their way to contracts around the world. But now there is a new frontier in the fight against global corruption, which is the unsettling pattern regarding the ethics of professional firms. Law firms that put the duty to the client above the interests of justice; accountancy firms whose audits serially fail to spot corruption even in notorious cases like FIFA; estate agents selling high-end properties to corrupt oligarchs. We were just doing our job: don’t blame us. It would not be so galling if those very bodies did not proclaim their ethical standards so loudly, and lobby so hard on that basis for self-regulation, exceptions and legal protections. But since Britain’s law firms, and accountants, and other professionals do so loudly proclaim their ethics, there is a simple message: prove it.

Finally, here’s the view from David Lewis, Executive Director of Corruption Watch: ‘We feel strongly that professional bodies have powerful sanctions at their disposal which they generally fail to impose either because they don’t wish to air the profession’s dirty linen in public and/or because their immediate reaction to allegations of unprofessional conduct is to close ranks. We will assist the auditing profession in their enquiry into the conduct of KPMG and we are actively considering asking the Law Society in South Africa to investigate the conduct of Hogan Lovells.’